The life insurance business is fickle. Some agents go days, weeks or even months without selling a policy.Dan Kohler, a Corvette-driving embalmer-turned-insurance agent from Keizer, figured out how to sell dozens of policies in a single day and to do so without the hassle of meeting or even speaking to his customers.
There is one unusual twist to Kohler's setup most of his customers are buying the equivalent of "death" insurance, or what's called "pre-need" insurance. Customers pay premiums to cover their funeral costs in advance.
It's a large and growing business as Baby Boomers age. Kohler, 49, says he and the 30 agents who work for him in funeral homes around the state sell about $5 million worth of pre-need policies annually.
"I'm a big player in the industry," says Kohler, who still moonlights as a funeral director.
A key part of Kohler's business involves switching clients from pre-need trust accounts to his insurance product, a practice that Joshua Slocum of the national Funeral Consumers Alliance calls "a scam" but one that Kohler defends vigorously.
Executive director David Koach of the 11-member Oregon Mortuary and Cemetery Board, a state watchdog agency responsible for protecting funeral-industry clients, agrees with Slocum's assessment.
A tobacco-chewing onetime steel mill worker with 30 years of regulatory experience, Koach is the arch-nemesis of Kohler and his allies in the funeral industry, who would prefer to be left alone. His staff investigates more than 75 complaints annually, involving allegations ranging from corpse abuse to wholesale fraud.
"The industry is intentionally shrouded in secrecy," says Slocum. "Given how vulnerable customers are, [funeral directors] need special attention."
If there's one thing that Kohler, a genial Boy Scout leader, does not appreciate, it's regulatory scrutiny.
Kohler acknowledges he's urged some of Koach's board members to fire Koach. "I gave them a list of people from the industry who could do the job better," he says.
And in the current legislative session, Kohler and some of his pals in the funeral business are using their connections to try to neuter Koach's agency, which Kohler says uses "Gestapo-like" tactics.
Kohler and some unhappy funeral directors have tapped into two strong emotions that course through the Capitol, despite or perhaps because of Democratic majorities: One is a disdain for urban bureaucrats; the other is the view that regulation is an impediment to profit rather than a fundamental protection for citizens.
Their crusade against an obscure regulatory board provides an inside look at how business gets done in Oregon's citizen Legislature.
Tobacco taxes, the "kicker" and K-12 school funding might dominate headlines, but much legislative debate consists of weighing the public's interests against business interests, such as those of funeral directors.
Kohler's legislative allies failed in their efforts to gut funeral regulation in 2005. But with a sheaf of new bills in the 2007 session, industry-friendly lawmakers might just succeed in removing effective oversight of the last business every Oregonian will ever deal with.
"This board exists to protect consumers, not the funeral industry," Slocum says. "Weakening its authority would be a big loss."
In early April 2005, the Oregon Department of Consumer and Business Services began investigating Dan Kohler.
The agency suspected he had converted clients of at least two funeral homes from pre-need trust accounts to pre-need insurance without properly disclosing the risks and costs involved.
Pre-need trusts are savings accounts established through funeral homes that allow customers to prepay for death services. Account-holders earn interest and can usually withdraw their money without penalty if they change their minds about how to pay for funeral expenses.
DCBS investigators oversee pre-need trusts. They worried that Kohler's customers didn't know that when they converted their trust accounts to insurance policies they were surrendering flexibility and, perhaps more importantly, paying Kohler and his agents gigantic commissions—20 to 30 percent of the money in their accounts.
(Proponents of pre-need insurance tout its portability, the absence of taxable income and the ability to shield assets from Medicaid means testing. Critics say the agents' commissions far outweigh any benefits.)
Although the amount of an individual pre-need account is typically less than $10,000, the cumulative pre-need business is considerable. At the end of 2006, according to state figures, about 55,000 Oregonians held nearly $100 million in such accounts.
Pre-need insurance sales agents are gaining an increasing share of the pre-paid funeral business, says Hal Martin, CEO of American Funeral and Cemetery Trust Services of Beaverton.
"I would bet that 60 to 70 percent of new business is going to insurance policies because it's driven by commissions," he adds.
The insurance policies are gaining ground, Martin explains, because funeral directors or their employees often also act as insurance agents who share in the hefty pre-need insurance commissions. Funeral directors earn virtually nothing from pre-need trusts.
DCBS records show in late 2004 and early 2005 Kohler helped two funeral providers, Workman & Steckly Funeral Chapel in Sweet Home (now Sweet Home Funeral Chapel) and Farnstrom-Gable Funeral Chapel in Northeast Portland, convert dozens of clients from trust accounts to insurance policies. (Kohler says he has converted clients at numerous other funeral homes as well.)
To effect the conversion, funeral directors sent trust holders a letter merely seeking their signatures.
On April 27, 2005, DCBS investigator Patrick Fitzgerald wrote Workman & Steckly: "Your letter to clients gave the false impression that they were required to sign the enclosed forms for their pre-arranged funeral to continue....We believe that in moving the trust funds as you have, Workman & Steckly may have violated Oregon law."
It turns out Kohler had written the allegedly misleading letters.
"This transfer was arranged and facilitated by Daniel Kohler, an insurance agent based in Keizer, Oregon. It is Kohler, his agency—Professional Preneeds, Inc.—and the company for which he is an agent, Great Western Life Insurance Company of Ogden, Utah, that most directly benefit from this transfer," wrote DCBS's Fitzgerald in an Oct. 17, 2005, summary of the investigation.
A sample policy from the file shows how Kohler benefited at the client's expense: An 84-year-old female Workman & Steckly client had $2,418 in her trust account. When she switched to insurance, the cash value of her policy dipped to $1,920.
"That is a complete rip-off," says Slocum. "The agent gets a big commission, and the client is worse off."
Slocum says pre-need insurance agents take advantage of elderly clients who may be ill, lack financial sophistication or be otherwise vulnerable.
Conversion from trusts to insurance is against the law in several states, DCBS and consumer advocates point out, and regulators say it's never a good idea.
"In my view [conversion] is a scam," Koach said in a March 27 Mortuary and Cemetery Board meeting. "People who convert from trust accounts to insurance lose a lot of money."
DCBS's investigation ended in October 2005 with only a warning to Kohler, who says he did nothing wrong.
"They had some problems with the letter we were sending out, so we changed it," he says. "There was no intent to defraud, and nobody lost a dime."
In fact, says Kohler, who helps design Eagle Scout projects, if there's a victim, it's him.
"Some people might say they're 'Boy Scouts,' but I really am one," he says.
At the same time Kohler faced the DCBS investigation, he was recruiting a powerful legislative ally, state Rep. Tom Butler (R-Ontario).
Butler, a homespun 60-year-old certified public accountant and former Malheur County commissioner, says he never knew much about the funeral trade until the spring of 2005.
Butler's Salem office is a slice of rural Oregon. Jars of homemade pickles and relish adorn bookshelves. A wall clock from Ontario Pipe Supply is set to Mountain Time, because his hometown, 304 miles from Salem, is in a different time zone. Butler's assistant's diminutive poodle, Muffy, rests under a couch near his desk.
Although he's known for walking the Capitol in a battered cap that says "Beef" on the front, Butler's no hayseed. His real-estate holdings and investments require a four-page addendum to the six-page statement of economic interest that legislators must complete annually.
In 2005, Butler served as chairman of the House Revenue Committee, giving him the last word on any bill that adds to or reduces the flow of funds to the state.
And while many of his Republican colleagues were exiled to legislative Siberia this session, Butler remains on the Revenue Committee, where he's the ranking Republican.
A devout Mormon and longtime Boy Scout leader like Kohler, Butler is not above using his office to benefit friends. In 1999, he voted to cut funding to a State Police unit then investigating Butler's largest campaign contributor (see Rogue of the Week, WW, April 28, 1999).
But money isn't always the motivator.
In 2005, when the tax break on a historic home owned by his legislative aide, Rebecca Sterup, was set to expire, Butler introduced legislation allowing an extension of the 15-year tax break on thousands of properties for another 15 years.
And in the spring of 2005, when a funeral-director constituent named Dennis Haren called with a complaint about a Mortuary and Cemetery Board inspector, Butler was all ears. In part, that was because Haren's complaint included two of Butler's pet peeves: big-city arrogance (the Mortuary Board's office is in Northeast Portland) and bureaucratic inflexibility.
Butler says a Portland inspector wanted Haren to make expensive renovations to a funeral home that had operated for decades simply because the home was undergoing a routine re-licensing.
Again, money doesn't appear to drive Butler's action, since he has received only a $500 donation from the Oregon Funeral Directors Assocation—in July 2006. Instead, Butler says he quickly came to believe the board and its staff failed to understand their proper roles. "Licensees are the people who are paying the freight for the board and the staff," he says. "The more I looked at the board, though, the more I thought that people brought agendas to their work and had lost their way."
That view of the board's role is sharply at odds with its stated mission: "To protect public health, safety and welfare."
Rick Bennett, a lobbyist for the senior-citizen advocacy group AARP-Oregon, has been trying to improve relations between the funeral industry and the board. But he argues that the state's role is clear: "The bottom line is that the agency's mission is to protect the public."
It was no accident that Haren came to Butler: Dan Kohler says he told Haren to give the legislator a call. (Butler did not identify Haren; Koach declined to comment on the matter or confirm Haren's identity, citing the board's confidentiality rules.)
A Pendleton native, Kohler says he first met Butler about 20 years ago at an Ontario Mormon temple.
"We met in church, and later he did my taxes," Kohler says. "I've always found him to be an honorable guy who is willing to stand up for what is right."
Kohler denies that he sought Butler's help to curry favor with funeral directors.
"All I care about is what is right," he says.
Kohler and Butler say Koach's staff is nitpicky, undertrained and hostile to licensees. (In 2005, it also had a large backlog of investigations, since reduced from 347 to 69 cases.)
The two men and their allies in the Oregon Funeral Directors Association argue the board conducts too many investigations and has too many public members (four) and too few funeral industry representatives (seven).
"The OCMB was established to work with funeral homes and the public, not against the small business[es] that do so much to serve their communities," Kohler wrote to Butler in a May 2005 email.
On May 9, 2005, Butler appeared in front of the Joint Ways and Means Committee subcommittee on education, which was reviewing the Mortuary Board's budget.
In his testimony, he painted a picture of unfeeling Portland bureaucrats harassing rural funeral directors.
"I would ask you that they not check [their] common sense at Mount Hood when they leave western Oregon," he testified.
After his Ways and Means Committee testimony, Butler claims Koach's staff retaliated against a Butler constituent who was a funeral director, a claim Koach denies. Butler then summoned Koach to his office for a 6 am meeting.
"I intend to use the powers vested within the Oregon Legislature and within statute and the Oregon Constitution to bring your full board and staff to an accounting for your actions—be they for good or ill," he wrote to Koach on May 11, 2005.
Butler was just getting started.
On May 16, the Oregon Funeral Directors Association, which says it represents about two-thirds of the nearly 200 funeral homes in the state, faxed members a request to inform Butler of any "alleged improprieties by the OSMCB with regard to investigating techniques and regulatory oversight."
Despite Kohler's obvious personal stake in reducing regulatory scrutiny, Butler essentially deputized him to find dirt on the board.
In a May 16, 2005, email to Kohler that WW obtained through a public records request, Butler wrote: "Can you please get the word out that I need input from funeral directors who have experienced these problems throughout the state? In confidence and on a no-name basis, these good folks can send me a written narrative."
The next morning, at 5:08 am, Kohler emailed 42 recipients in the Oregon funeral business.
"Rep. Butler needs our help. If you have experienced any problems with the Mortuary Board or investigators please send them to Rep. Tom Butler at the address below."
The pleas yielded 17 complaints, which even Butler now characterizes as "small stuff." (He adds that it's "not unusual" for him to seek the expertise of private citizens when considering legislation. He also says he didn't know about the DCBS investigation of Kohler, and DCBS officials say nobody exerted political pressure on Kohler's behalf.)
Although the complaints didn't exactly provide proof of the "Gestapo tactics" Kohler loves to mention, the battle was far from over.
In 2006, two other lawmakers, then-House Majority Leader Wayne Scott (R-Canby) and Rep. Jerry Krummel (R-Wilsonville), joined Butler's pursuit of Koach and his agency.
At interim legislative hearings, held in part to address a revenue shortfall at the Mortuary and Cemetery Board, Scott tore into Koach.
"I'm hearing you are like the Gestapo," Scott told Koach in a March 2006 hearing. "You have a group of people you are regulating that are so unhappy with your organization that they want to disband it."
Republicans were not alone in their unhappiness. Last September, state Sen. Kurt Schrader (D-Canby), co-chair of the Joint Ways and Means Committee in 2005 and again this year, wrote to Koach.
"Your current relationship with all parties, including the Oregon Funeral Directors Association needs to be fixed," wrote Schrader, an even more potent critic since Democrats have added control of the House to their previous control of the Senate. "It is unlikely the Ways and Means subcommittee will approve your fee increases [in 2007] unless the Board and Directors develop a proper working relationship."
In an industry whose clients can't advocate for themselves because they are dead, the AARP is one of the few outside groups paying attention.
AARP lobbyist Bennett says legislators may be getting swayed by a small subsection of the industry. "There is a strong and vocal minority in the funeral industry who would prefer to have no regulation," he says.
Fortunately for Koach, Gov. Ted Kulongoski, who appoints the members of the Mortuary and Cemetery Board, backs him.
"The governor strongly supports the consumer protection mission of the Mortuary and Cemetery Board and opposes any legislation that would weaken its authority," says gubernatorial spokeswoman Anna Richter Taylor. "And he is pleased with the executive director."
Kulongoski's support may not be enough. While nearly every state agency will get a double-digit budget increase for 2007-2009, the Mortuary and Cemetery Board is looking at a 14 percent shortfall because costs are increasing faster than fee revenue. Koach expects to lay off one of the board's six employees, an inspector.
Butler would prefer that it be Koach who got laid off.
"There is a high level of 'no confidence' in this building [the Capitol] for the executive director," Butler says. "He's just not getting the job done."
Bills that Butler has introduced this session would gut the Mortuary Board's investigative powers, end unannounced investigations and greatly increase the number of steps needed to discipline a licensee.
Butler has even resorted to legislating minutiae to benefit the industry. He co-sponsored a bill—at Kohler's request—that would allow death certificates be filled out in ink of any color instead of only black, a convenience for funeral directors.
Kohler denies Butler has done him any special favors.
He and the representative both just believe in "doing what is right," says Kohler. "If we could have 50 more Tom Butlers in the Legislature, Oregon would be a whole lot better off."
What the board does
As a result of a Lincoln City funeral home scandal 23 years ago, Oregon has what Joshua Slocum of the Vermont-based Funeral Consumers Alliance says is one of the strongest regulatory programs in the country.
For the Oregon funeral industry, what is now known as the "Omsberg Incident" was the equivalent of the Big Bang.
In 1984, police found 15 decaying bodies in Lincoln City funeral director Dale Omsberg's garage. Omsberg had accepted payment for cremation for more than 45 bodies but instead simply tossed them—along with the funeral home's garbage—into mass graves in a cemetery he operated.
At the time, the Mortuary Board consisted solely of five undertakers and was staffed by one secretary.
Omsberg went to prison. But families of Omsberg's victims demanded industry reforms. In 1985, the Legislature expanded the board to 11 members, including four public representatives. (In contrast, only two of the 10 total members of Washington's separate mortuary and cemetery boards are from outside the industry. Some other states, including Idaho, have no public members on their boards.) The board also took on new licensing, inspecting and investigative responsibilities, including monitoring a rigorous new system for ensuring bodies were handled properly.
"After 1985, everything changed," says Clatskanie Mayor Diane Bassett-Pohl, whose late husband's remains were found in Omsberg's garage and who is now a public member of the Mortuary Board. "Since then, we've had the strongest protections in the country."
The difference the post-Omsberg laws made is startling. On average, according to state figures, Oregon investigates 128 complaints and makes 48 disciplinary findings per biennium; Washington, with twice the population but laws allowing discretionary investigations, conducts only 12 investigations and takes three disciplinary actions per biennium.
"The Washington board has a much higher percentage of industry representation, and that's bad for the public," says Slocum.
In 1998, a Medford funeral director named David Kern stole $6 million from the pre-need trust accounts of 4,000 clients. The board investigated and eventually got the money back for all the affected families. Kern went to prison.
"While any regulatory board should strive to be efficient and responsive to those it regulates, the bottom line is to protect the public," says AARP-Oregon lobbyist Rick Bennett. —NJ